NCPA - National Center for Policy Analysis

Spending Spree And Tax Cuts May Lead To Budget Reform

February 10, 1999

Congress and Bill Clinton will almost certainly cut a budget deal to allow both higher spending and a large tax cut. Why? Because the 1990 budget deal established two legally binding constraints that both Congress and the White House now want to revise.

The first budget constraint imposes caps on discretionary spending -- programs for which funds must be appropriated annually -- which are now severely confining. According to the Congressional Budget Office (CBO), the caps will force discretionary spending to be cut the next three fiscal years and rise very little thereafter, causing it to fall from 6.6 percent of gross domestic product (GDP) this year to just 5 percent by 2009.

The second constraint is the so-called paygo procedure, under which reductions in taxes must be offset either with tax increases or cuts in entitlement programs, those for which spending is automatic. The law expressly prohibits tax cuts from being offset with cuts in discretionary programs. Moreover, the CBO has ruled this provision applies equally when the budget is in surplus or in deficit, making it just about impossible to cut taxes.

Senator Pete Domenici (R-N.M.), chairman of the Budget Committee, has introduced S. 93, a bill that would modify the paygo law in order to allow some of the surplus to be tapped for tax cuts. Domenici notes that the budget law allows spending above the caps for "emergencies," but there is no provision for an emergency tax cut. Just last year, for example, Clinton used $27 billion from the surplus for emergency spending, despite his oft-stated pledge to use all of the surplus to "save" Social Security first, in order to forestall Republican tax cut efforts.

And in his latest budget, Clinton continues to use budgetary gimmicks to increase spending, including raising cigarette taxes, increasing fees, cutting health funds for states and squeezing payments to doctors and hospitals.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, February 10, 1999.


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